By John L. Watkins and Guest Contributor Henry Shurling
In a number of our blogs and podcasts, we have noted that start-ups and small and medium-sized businesses should have a strong insurance program as part of their risk management program. A number of recent interactions with clients have reminded me that many businesspeople have a very limited understanding of insurance and how it works.
Accordingly, this is the first in a series of posts that will cover some of the basics of insurance for business. Henry Shurling of the McCart Group, an Atlanta-based insurance agency and risk management consulting company, joins this series as a guest co-author, and provides his considerable insights on these important issues.
Please note that the focus of this series of posts is on liability insurance. We are not covering other important issues such as group health, disability, or life insurance, although they are also very important.
1. Understand the Role of the Agent or Broker. When a company buys insurance, it typically uses, whether it knows it or not, an insurance agent or broker (although there are differences betwween an agent and a broker, we will refer to both genererically hereinafter as a "broker"). Businesspeople sometimes refer to their broker as "the insurance company," but that is not correct. Although a broker serves as the point of contact for obtaining insurance, the broker does not itself provide the insurance.
The role of the broker is to advise businesses on an insurance program and to solicit proposals from different insurance companies, or carriers, for consideration. Insurance carriers include companies such as Zurich, Travelers, Chubb, Hartford, among others. The carrier, not the broker, provides the insurance and issues the policy.
The broker should take the time to understand the customer's business and help recommend an appropriate insurance program with appropriate policy limits. Brokers should help businesses understand their risk exposures and look at alternative ways to address them. The purchase of an insurance product often plays a significant role when dealing with these exposures but is not always the most efficient method available. A competent broker should be willing and able to discuss these alternative methods with their clients.
For example, the McCart Group offers professional and technical services in areas of safety, health and claims management. These areas include OSHA compliance, FMCSA audits, Industrial Hygiene and Environmental Consulting. Although having coverage for a risk is important, avoiding claims in the first place is even better.
2. Obtain a Copy of the Insurance Policy. It is surprising that many companies facing a potential claim cannot produce a copy of their own insurance policy. An insurance policy is an important document, and the insurance policy, as issued, should be kept in a safe place, as is the case with other important company documents. It is true that a copy of the policy can be obtained from the carrier, perhaps with the assistance of the broker. This often takes time, however, and decisions may have to be made quickly in the event of a claim. In addition, having the policy available aids a broker in reviewing and comparing coverage at policy renewal time.
By referring to a copy of the policy, we mean the complete copy. A policy will usually have a declarations page (or "dec page"), which sets forth the basic coverage provided, policy limits and deductibles. But a declarations page is not the complete policy. The policy will also typically include the policy form, which includes definitions (which are often very important in determining the extent of coverage), the insuring agreement (the basic grant of coverage), the policy conditions (which often contain requirements for what the insured must do in the event of a claim), and any policy exclusions (important provisions that limit the extent of coverage).
A policy may also include endorsements, which are extra provisions that are usually attached to the basic policy forms. Endorsements modify the policy provisions and may increase or limit the extent of coverage. Endorsements are often very important in determining the extent of coverage.
In coming posts, we will cover additional insurance issues, and will delve into more specific issues regarding coverage and other issues.